BitShares 101 – Everything you should know before investing
“BitShares is designed from the ground up to process more transactions every second than VISA and MasterCard combined.”
BitShares is one of the few cryptocurrencies that rose to fame as soon as it was launched back in 2015. Today still, BitShares is regarded as an investor-favorite in cryptocurrency market having one of the strongest blockchain platforms known to this technology. Trustless, fast, and able to scale with use, BitShares is a decentralized exchange at its core that is aiming to destabilize the way we currently deal with buying and selling of our cryptocurrencies. The BitShares platform is completely run and maintained by the BitShares community, an open consortium of individuals and organizations committed to providing universal access to the power of smart contracts. Not content with users having to convert to fiat currencies (like USD and EUR) in order to stabilize their investments, the community has created an exchange platform built on the blockchain that is powered by Smart Coins.
Traditionally, investors and traders buy and sell cryptocurrencies on an exchange by converting them to and fro from fiat currencies like USD. This meant that ‘anonymity’ that is promised by cryptocurrencies is lost during every transaction involving crypto coins and fiat currencies, making complete anonymity non-inherent in the blockchain platform. The disadvantage of online exchanges is that they are centralized systems. The database is stored on servers controlled by the exchange alone, and you need to create verified accounts to use its services, usually involving scanning your passport or driving license. Bitcoin and altcoins are still relatively young concepts and still suffer from wild swings. For this reason, while they may offer good investment opportunities, there remains a need for a way to convert crypto coins into a stable asset – often USD.
While this need for centralization is understandable till some point, the need for a stronger, decentralized and anonymous system is more to fuel a wholly trustless system on the blockchain platform. And this is exactly what Daniel Larimer, Stan Larimer, and Charles Hoskinson were aiming to achieve through their idea of “A Peer-to-Peer Polymorphic Digital Asset Exchange” known as BitShares. Unlike bitcoin, BitShares’ main goal is not to be a peer-to-peer currency, but a fully-fledged exchange system with value tokens (such as BitUSD or BitGold) tied to real-life assets called BitAssets.
In an interview with Coin Telegraph, Ken Code – Public Relations Manager at BitShares described BitAssets as “market-pegged assets which become “smart currencies,” pegged by market forces to underlying fiat currencies (USD, EUR, CNY) or commodities like gold and silver. They provide stability, allowing merchants to hold the currency rather than selling it quickly to avoid the volatility of first-generation cryptocurrencies like bitcoin.”
This smart assets platform also allows for the creation of user-issued assets (UIA) so anyone can create digital assets on the BitShares blockchain. These digital assets can be specified to be used for a wide variety of things including crowdfunding with equity, for property rights, or as tickets for events.
In his blog post, Larimer explained that BitShares can be made to function as a software, a network, a ledger, a bank, an exchange, and a currency all at once. For example, it can fulfill the role of a bank by maintaining a distributed ledger that tracks debt collateralized by other assets. In the case of BitShares, dollar-denominated debt is collateralized by BitShares’ cryptocurrency BTS. “This dollar-denominated debt is a BitAsset known as BitUSD. BitShares supports any number of BitAssets including BitGold, BitSilver, BitOil, etc. Whereas normal banks practice the unsustainable business of fractional reserve banking, BitShares uses at least 200 percent reserve and is often over 300 percent reserve. Whereas normal banks use illiquid assets to back (collateralize) debt payable on demand, BitShares uses highly liquid BTS as collateral.”
The technology behind BitShares offers numerous features that are not available on other popular blockchain platforms.
We’ve already spoken about Smart Currencies in the above subsection of BitAssets. Like any other cryptocurrency, SmartCoins are fungible, divisible, and free from any restrictions. Things get interesting when we come down to the Exchange Platform itself and the Graphene Technology.
Now, the BitShares provides with a fast and fluid trading platform in the form of a decentralized asset exchange, with all the features you would expect in a trading platform. It can handle the trading volume of the NASDAQ while settling orders the second you submit them. With this kind of performance on a decentralized exchange, who needs risky centralized exchanges?
It provides for dynamic permissions by designing them around people, rather than around cryptography, making it easy to use. Every account can be controlled by any weighted combination of other accounts and private keys. This creates a hierarchical structure that reflects how permissions are organized in real life and makes multi-user control over funds easier than ever. Multi-user control is the single biggest contributor to security, and, when used properly, it can virtually eliminate the risk of theft due to hacking.
As high-performance blockchain technology is necessary for cryptocurrencies and smart contract platforms to provide a viable alternative to existing financial platforms. BitShares is designed from the ground up to process more transactions every second than VISA and MasterCard combined. With Delegated Proof of Stake, the BitShares network can confirm transactions in an average of just 1 second, limited only by the speed of light. Thus with Graphene being capable of 100,000 TPS when we pay the network to go for it, Bitshares ensures excellent industrial performance and scalability.
Along with all of this, BitShares is designed to be self-funding and self-sustaining by giving the stakeholders the power to direct where blockchain reserves are spent. BitShares has a reserve pool of 1.2 billion BTS (about $8 million dollars) that automatically grows as transaction fees are collected and the share price rises. Each day, the blockchain is authorized to spend up to 432,000 BTS (about $77,000 per month), which is enough to hire a small team to maintain the network for years, even with no price appreciation.
“BitShares is a decentralized autonomous company, and as such offers products to earn their shareholders a profit. The BitShares DAC offers their private customers several products and in this paper, we would like to briefly highlight some of them. Of course, all of these come with with the properties of cryptocurrencies, namely (a) global accessibility, (b) customizable anonymity, (c) industry-grade security, (d) freedom from counterparty-risk, (e) flexible account Control, (f) low transaction delays, and (g) worldwide decentralized network.”
“In BitShares, each account is separated into
- Active Permission which has control over its funds and
- Owner Permission which controls the account itself.
Furthermore, BitShares uses authorities consisting of one or many entities that authorize an action, such as transfers, trades or account modifications. An authority consists of one or several pairs of an account name with a weight. In order to obtain a valid transaction, the sum of the weights from signing the parties has to exceed the threshold as defined in the permissions.”
“The BitShares platform also contains a flexible feature called “user-issued assets” (UIA) which will help facilitate a wide range of profitable business models based on certain types of services. A UIA is a type of custom token registered on the platform, which users can hold and trade within certain restrictions. The creator of such an asset can publicly name, describe, and distribute its tokens, and can specify custom requirements such as an approved whitelist of accounts permitted to hold the tokens, or the associated trading and transfer fees.”
“The BitShares community employs Delegated Proof-of-Stake (DPOS) in order to find efficient solutions to distributed consensus decision making. DPOS attempts to solve the problems of both Bitcoin’s traditional proof-of-work system, and the proofof-stake system of Peercoin and NXT by implementing a layer of technological democracy to offset the negative effects of centralization. For historical reasons, the technology is still called delegated proof-of-stake even though what have been delegates in BitShares 1.0 are now so called witnesses.”
“Additionally, the Graphene technology allows users to propose a transaction which requires approval of multiple accounts in order to execute. These transactions are only partially valid and do not execute until they are completely valid.”
“There is no reason why the same entity needs to be responsible for issuing IOUs and for processing the order book. In fact, this is is actually a disadvantage from a security standpoint. It is only because these two roles have been combined that there is a tendency toward centralization in the Bitcoin exchange space. Therefore, to create a decentralized exchange, the first step is to move the order book onto the blockchain so that anyone can see and audit it. After this is done, gateway services can still be used to enter and leave exchange order book through IOUs, just like a traditional exchange uses.”
Graphene, an Open Source, mostly C++, blockchain implementation was originally developed as the foundation of Bitshares, a cryptocurrency exchange marketplace. The source is available in numbers of variations, as it has been forked and adapted many times. The original release is managed by an organization known as Cryptonomex. Graphene is interesting because it is Open Source, but also because it was developed in a very modular fashion, making it adaptable to many different uses. In addition to Bitshares, Graphene serves as the blockchain foundation for Steemit.com, a news aggregation site similar in concept to reddit.com and PeerPlays.com, a gaming site. FollowMyVote.com is another example of a service built on the Graphene blockchain.
BitShares’ native cryptocurrency is also called bitshares and carries the ticket BTS. It is currently in the top 30 largest digital assets and has a market capitalization of around $663 million. The current circulating supply of bitshares is just above 2.6 billion BTS, and there is a 1 billion BTS reserve fund held by BitShares. The BitShares reserve pool is used to pay workers and receives an income from transaction fees. The total supply of BTS will not exceed 3.6 billion.
Since its launch in October 2014, bitshares’ price was trading in the range from below one cent to under 4 cents and did not bring significant gains for investors. However, when the digital assets rally of spring 2017 started, the value of bitshares increased substantially along with the rest of the altcoin market to peak at its all-time high of $0.45 on June 10. At the time of writing this article, the value of bitshares stood at $0.25 per coin.
Bitcoin versus BitShares
Quoting Ken Code, the PR Manager of BitShares as he highlights some major differences between the two cryptocurrencies and what makes BitShares the alternative of the wise:
“I love Bitcoin, but it wastes hundreds of millions of dollars annually on miners it pays to secure the network and often takes more than an hour to confirm a transaction. This is not a very practical solution for real world asset trading. BitShares is a platform for deploying profitable businesses with low overhead. Its security costs are a tiny fraction of this and transactions are confirmed in an average of five seconds. Also, the key functionality of Bitcoin and most of its clones is, in essence, a new form of checking account that has no counterparty risk. BitShares goes beyond that basic service to provide a wide range of other counterparty-free financial services. BitShares takes Bitcoin’s concept of an incorruptible public ledger and applies it to many profitable business models.
With Bitcoin, over half the blocks are signed by two or three individuals (owner/operators of large mining arrays or pools). These two or three people control what version of the software is official and publicly collude to implement hard forks. With BitShares, no delegate is permitted to sign even 1% of the blocks and each must have a reputation that is among the most approved by BTS owners.
With Bitcoin, mining entities appoint themselves and there is nothing that actual bitcoin holders can do to get rid of a bad actor that controls a lot of hash power. BitShares owners can fire delegates who lose their confidence in ten seconds.
Finally, the BitShares delegate architecture produces a useful by-product that we call “distilled trust”. Such trust is a useful commodity in its own right. For example, selecting software versions, publishing information feeds and choosing system parameters are functions that benefit from having trusted humans in the loop.
This enables products and services that are beyond the reach of first generation systems, no matter how “trustless” they may claim to be. Bitcoin inherently trusts the several large pool operators to faithfully run the software specified by its core developers who are themselves in positions of trust. Bitshares just makes this trust explicit, accountable and quickly revocable by BTS owners.”
Should You Invest in BitShares?
As BTC Manager puts it, like with most cryptocurrency projects, the investment story for bitshares focuses on the success or failure of its platform. BitShares has been around since 2014 developing its platform that allows users to digitize “real world” assets and trade them on the blockchain in a decentralized manner. If the digitization of traditional assets and securities becomes industry standard in the financial industry and if BitShares manages to become the go-to platform for this, then the value of bitshares (BTS) will skyrocket.
BitShares looks to extend the innovation of the blockchain to all industries that rely upon the internet to provide their services. Whether its banking, stock exchanges, lotteries, voting, music, auctions or many others, a digital public ledger allows for the creation of distributed autonomous companies (or DACs) that provide better quality services at a fraction of the cost incurred by their more traditional, centralized counterparts. BitShares does for business what bitcoin did for money by utilizing distributed consensus technology to create companies that are inherently global, transparent, trustworthy, efficient and most importantly profitable.
Now, due to payment disputes with other developers on the BTS team, Larimer is no longer involved with the project and has sold his shares in the project. The BTS GitHub remains active with contributions from Fabian Schuh and Vikram Rajkumar. Since highs were reached in June 2017, BTS has slowly bled almost all its gains. The trend is candidly bearish and has been for months. Coins with this price structure pose a unique opportunity for large risk and reward trades.
BTS offers much more than just a cryptocurrency, but has essentially collapsed under its own weight of complexity and lack of compelling use cases. And even though BTS has lost much of its smart contract market share to Ethereum, we at Itsblockchain are sure that the decentralized exchange offered on the platform may provide a future golden egg service. BitShares is currently significantly undervalued and in the near future it will be a whole different ball game!